The agency challenge: How Woolley, Woodley, and other cases rearranged the hotel-management landscape

A series of court cases have redefined the relationship between hotel owners and their management companies and their frachisors. Beginning with a 1991 California decision, courts have determined that hotel-management firms are agents for the owners with whom they contract—even if the management contract says otherwise. In part, a key indication of agency is when one party provides services to the other for a fee—which is the nearly universal arrangement in a management contract. Two key aspects of agency have tripped up such industry giants as Embassy Suites, Hyatts, Marriott, Radisson, and Sheraton. The first element of agency is that the principal (i.e, the owner) can dismits the agent at any time, despite what the parties' contract says. Second, the management company as agent is required to act in the principal's best interest. So, when a Washington, D.C., jury determined that some practices common in the hotel industry are not in the owner's best interest, that jury ordered Sheraton to pay compensatory and punitive damages to the hotel's owners. Franchisors may also be considered as “agents” when they services to their licenses—as occurs, for instance, when hotel chains provide reservation services for a franchise. Following the logic of the management-contract cases, a New York court determined that Radisson was an agent for a hotel in that city, even though it did not operate the hotel itself, because it did provide a serve (the reservation system) for a fee. Taken together, the lesson to be learned from the cases reviewed in this article is that, no matter what the owner-manager contract states on paper, it is the characteristics of the relationship and existing legal precedent that will dictate the terms during any dispute.